Looking to Refinance? It Could Pay to Start With Your Current Lender

by Maurie Backman | Updated July 19, 2021 - First published on Feb. 20, 2021

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Shopping around for refinance rates is always a good idea. Here's why your first call should still be to your existing lender.

Today's mortgage refinance rates are still near record lows. If you have a great credit score, a low level of existing debt, and a steady job, you may be a good candidate for a new home loan. And if you manage to substantially lower the interest rate on your mortgage with that new loan, you could reduce your monthly payments significantly.

Now, you'll often hear that when it comes to refinancing, it's best to shop around for offers from different refinance lenders -- and that's good advice. You never know when one lender might be able to offer you better terms. But while shopping around for a refinance quote makes sense, you should still start your search with your current lender.

Use an existing relationship to your advantage

There's one key benefit to applying for a mortgage refinance with your existing lender: You already have a relationship. If your account is in good standing -- meaning, you've always paid your mortgage on time and aren't behind on any payments -- your current lender is likely to want to keep you on as a borrower. As such, your existing lender may be more willing to offer you a competitive interest rate on a new home loan, low closing costs, or both.

Of course, it still pays to shop around, even if your lender comes back with a good offer. But by going to your lender first, you'll get a sense of what terms you may be eligible for. And that could help set your expectations.

Furthermore, if you get a more competitive offer from another lender, your lender may be willing to match it. For example, say your lender comes back to you with a 2.9% interest rate on your refinance, but another lender offers 2.85%. If you take that second offer to your current lender, it may agree to come down to 2.85%. And the same applies to closing costs -- your current lender may be more willing to negotiate those or come down to stay competitive with another offer.

Finally, if you're unsure as to whether you'll qualify for a mortgage refinance in the first place, your existing lender is a good place to start. If you're denied a new loan by your current lender, you may be in for a similar experience with lenders that don't know you. And that could prompt you to work on becoming a better refinance candidate. You may need to raise your credit score, pay off some existing debt, or work to boost your income.

Rate shopping could save you money

Remember, shopping around for a refinance offer is always a smart bet. And if you do your rate-shopping within the same 14-day period, it shouldn't impact your credit score too badly. Normally, each refinance application you submit will result in a hard inquiry on your credit report, and too many of those could hurt your score. But multiple refinance applications within the same two weeks will count as just one hard inquiry. As such, you can shop around and get all the information you need to make a smart decision -- even if you ultimately stick with your existing lender.

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